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Stock Index Futures

Updated on March 16, 2023

An ‘Index’ is a collection of stocks or securities chosen from a particular industry or sector or a large grouping of different securities, selected as per a pre-defined methodology. For example – BSE Sensex, Nifty 50.

Stock Index Futures are contracts that allow a trader to purchase or sell such Indexes at fixed prices to profit from price movements as well as price direction. Stock Index Futures are also used by investment firms and fund managers for protection or hedging against any adverse price fluctuations or losses.

What are the unique features of Stock Index Futures?

Some features of Stock Index Futures are:
a. The Futures contract should be settled within the expiry date.
b. Investors can buy Stock index futures in case of expectation of upward movement or sell index futures in case of expectation of downward movement

Which are some of the Stock Index Futures?

Nifty 50, Nifty Bank, Nifty IT, S&P BSE Sensex, S&P BSE Bankex, S&P BSE Sensex 50

How do investors benefit from Stock Index Futures?

Some advantages of Stock Index Futures are:
1. Trading through Stock Index Futures enables investing in entire sectors
2. Both long side as well as short side trades can be executed through Stock Index Futures
3. Charges on Stock Index Futures are comparatively lower than equities or stock futures
4. Traders can diversify by trading through Stock Index Futures and hence reduce the overall risk

What should investors know about Stock Index futures?

Stock Index Futures come with certain risks as well. Things to keep in mind while trading in Stock Index Futures are :
a. In absence of strong risk management, Stock Index Futures can cause losses
b. Trading in Stock Index Futures with leverage can prove to be expensive
c. Charges like STT, commission and trading fees must be kept in mind